In June 2017 Guernsey announced plans to introduce a new
regulatory framework for the provision of pensions and pension
services. At the same time, Guernsey introduced legislative changes
to enable non-domestic pension schemes to seek approval under the
tax law, with a view to providing information reporting to the
local tax authority as an approved scheme. One of the motivations
behind these changes was to enable eligible pensions to meet the
requirements of the OECD's Common Reporting Standard
("CRS") to enable such schemes to fall outside the scope
of CRS reporting.

This briefing identifies some of the key changes introduced by
Guernsey with effect from 30 June 2017 and will be of direct
interest to financial institutions that provide pension related
services which are established in, or operate from, Guernsey, as
well as employers and members of such schemes.

Capitalised terms used in this client briefing derive their
meaning from the CRS and supporting guidance.

Pension schemes - the issue

Prior to the changes it was understood that most Guernsey
pensions would be within scope of reporting under the CRS. This was
so unless they could meet the specific criteria of a Broad
Participation Retirement Fund or Narrow Participation Retirement
Fund, which are regarded as Non-Reporting Financial Institutions.
Alternatively, if a member's interest in a pension meets the
criteria to be an Excluded Account, this would also be out of scope
for CRS reporting.

The criteria to be met to qualify as a Broad or Narrow
Participation Retirement Fund or an Excluded Account are set out in
the boxes below.

Prior to the changes, most Guernsey pensions would not have met
the criteria to be regarded as a Non-Reporting Financial
Institution or an Excluded Account. This is due to the requirement
of the CRS, which is common to each of these categories, that the
pension fund must be both regulated and provide information
reporting to the local tax authority, in addition to meeting
certain other criteria.

However, Guernsey is now introducing regulatory oversight for
eligible pension schemes, which may enable such schemes to meet the
requirement to be regulated and provide information reporting to
the Income Tax Office ("ITO"). If they are also able to
meet the rest of the applicable criteria, they would qualify as
Broad Participation Retirement Funds or Narrow Participation
Retirement Funds and therefore be Non- Reporting Financial
Institutions. Alternatively, member's interests in such schemes
could be classified as Excluded Accounts if they also meet the
applicable conditions for that classification. If successful in
meeting all the relevant criteria, pension providers may prefer to
comply with local regulatory and tax reporting obligations rather
than comply with CRS reporting obligations. Either way, reporting
of information will be required for such schemes.

The approach under CRS differs from that under the US IGA, where
certain pension funds, such as section 150 approved occupational
schemes, are expressly referred to as exempt from reporting for the
purposes of the US IGA. This is not the case under CRS.

Regulatory oversight

As a first preliminary step towards implementing these
proposals, the Fiduciaries Law, under which trust service providers
are currently regulated, has been amended with effect from 30 June
20171 so that the formation, management or administration of
pension schemes or gratuity schemes (as defined) is now expressly
regulated. Those who provide these services by way of business will
need to be licensed to do so by, or obtain an exemption from, the
Guernsey Financial Services Commission ("GFSC"). The GFSC
will have supervisory oversight of these regulated service
providers. As a second preliminary step, the GFSC issued scheme
rules2 effective from 30 June 2017 which were amended with effect
from 29 August 2017 (the "Rules") as part of a more
comprehensive framework for providers of pension schemes and
related services. These steps pave the way for all eligible pension
schemes provided from Guernsey to comply with new government
regulation, in order to meet one of the criteria required to be
regarded as either a Broad or Narrow Participation Retirement Fund.
It also means that the scope of the Guernsey Financial Services
Ombudsman, which handles complaints in respect of services provided
by regulated entities, will be extended to providers of formation,
management and administration services for pension schemes and
gratuity schemes.

The States of Deliberation (Guernsey's parliament) also
directed that further legislation should be considered over the
next year to create the necessary legal foundation for the
development of the new regulatory framework for pension schemes and
their providers.

Gratuity schemes

The changes to the Fiduciaries Law apply not only to pension
schemes but also to, what are termed gratuity schemes. These are
defined as schemes established in connection with the carrying on
of business or the exercise of functions which have as their sole
or main purpose the provision of a lump sum or other payments for
employees (or their spouses, children, dependants or other persons)
on the occurrence of an event or circumstance, including the
expiration of their term of service.

The GFSC has clarified that for purposes of the Rules schemes
shall only be regarded as gratuity schemes if the lump sums or
other benefits are provided as retirement benefits or end of
service benefits3.

Gratuity schemes therefore include so-called
"end-of-service" schemes which are not necessarily
established to provide retirement, disability or death benefits but
can include these events as triggering a pay-out. Depending upon
the terms of the gratuity scheme and the circumstances in which
payments are made to members, it is unlikely that such schemes on
their own without further benefit restrictions would be outside the
scope of CRS reporting, even though they and their providers may be
subject to government regulation under the new framework. To be
outside the scope of CRS reporting such schemes would have to
fulfil the criteria in order to qualify either as Narrow or Broad
Participation Retirement Fund.

Information reporting

In addition to introducing regulatory supervision of pension
providers, Guernsey's Income Tax Law was also amended with
effect from 30 June 20174 to provide the option for all pension
schemes to seek approval under the Income Tax (Guernsey) Law, 1975
(as amended) (the "ITL"). As a condition of being granted
and maintaining approval, the Director of Income Tax (the
"Director") will require the reporting of information in
respect of the pension scheme concerned both at the time of the
application and then at intervals thereafter.

Specifically, this will enable schemes that currently do not
file information with the ITO (for example section 40(o) and 40(ee)
exempt schemes) because they do not require income tax relief for
their members who are not resident in Guernsey for tax purposes, to
submit reports that are consistent with fulfilling the conditions
to continue to be exempt from Guernsey income tax on income from
such schemes.

As a result of these changes, pension schemes that seek approval
will be required to provide annual reporting to the ITL. If they
also fulfil the other criteria required in order to be regarded as
a Broad or Narrow Participation Retirement Fund, they would be
outside the scope of CRS reporting. Thus, section 150 and 157A
approved schemes for resident members and section 40(o) and 40(ee)
exempt schemes for nonresident members will all be in a position
(should they so wish) to meet both the regulatory and the reporting
criteria as part of the conditions for being regarded as
Non-Reporting Financial Institutions. These two criteria are
elements that require structural changes to Guernsey's
supervisory and income tax regime and those changes are now being
implemented.

CRS reports due 2017

The deadline for submitting CRS reports, which cover the first
reporting period of 2016, has now expired. Reports in respect of
2016 Reportable Accounts should have been filed by the deadline of
30 June 2017, although the ITO announced that penalties and
compliance actions will not be applied until after 31 July
2017.

Following the publication of Bulletin 2017/5 by the ITO on 16
June 2017, the ITO have confirmed that schemes approved under
section 150, section 157A and new section 154(A) ITL (which permits
section 40(o) and 40(ee) pensions to apply for approval) that also
meet the rest of the conditions to be regarded as a Broad
Participation Retirement Fund or a Narrow Participation Retirement
Fund, would not be considered as Reporting Guernsey Financial
Institutions for the purposes of CRS for the reporting period 2016.
Such approved schemes would therefore be out of scope for CRS
reporting even before the GFSC's new regulatory framework for
pension schemes and their providers is fully in place and before
details of what information is to be provided and how often, are
published by the ITO.

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